Career Moves

Wall Street firms have enthusiastically encouraged the creation of teams in recent years — for all kinds of reasons. In an increasingly fee-based world, the growing complexity of products and services makes it hard for a single advisor to do it all. Teams also create a kind of internal mentoring and training system for rookies and make it harder for advisors to leave: It is a lot more difficult for one team member to take clients with him to a new firm when he's sharing those clients with other advisors.

But these days, with capital tight, top-producing individuals may begin to take precedence over partnerships. At least at Merrill Lynch, management seems to be more interested in keeping high-revenue-generating advisors happy than in whether a particular advisor's team survives.

Take Kent and John, a team of advisors from California who produce a combined $1.25 million and have been together for seven years. Kent, who has been with Merrill Lynch for 15 years, generates over 70 percent of the team's production, but says John is key to the success of their partnership: John contributes client management finesse, research and technology skills. Unfortunately for him, when Merrill Lynch (vis-à-vis Bank of America) crafted its retention offer, the formula was calculated to reward individuals rather than teams. Under the proposed retention offer, Kent will receive a cash award of $450,000, with an additional 25 percent through a growth bonus over the next three years. John, who has been with Merrill seven years and generates under $500,000 annually, won't get a cent.

While Kent likes the package he is getting and wants to stay put, John does not. Shortly after the retention was announced, John met with a few local managers from competing firms and was offered twice his trailing 12 months' production from a firm across the street. He does not want to break up his successful partnership with Kent, but feels that for financial reasons — and for the sake of his own self-esteem — he needs a switch. John is trying to convince Kent to move with him, but at 65, Kent feels like he's not up to it. Splitting may not be in the best interests of their clients, but given the impasse they are at, it may be the only solution.

In light of the increased recruiting traffic the wirehouse firms have been seeing of late, they have become much more selective about hiring — and retaining. As average production at the major firms approaches $700,000 per registered rep, hiring a $300,000 to $400,000 producer is not as appealing as it once was. The exception to this rule, though, has been a willingness to hire mid-level advisors who become part of a team that produces over $1 million in aggregate.

Take Josh and Deb, a Midwest wirehouse team that produces a little over $1 million combined annually on $135 million under management. Production is equally distributed between the two partners. When Merrill's retention package was announced, they were dismayed to discover that they would be considered individual producers rather than as a single unit. They are slated to receive about $125,000 each upfront, with the possibility of a similar traunch later, depending on growth. If they had been considered as a team, they would have split a total of $750,000 upfront, with another smaller bonus down the road. When they asked their manager, who helped them form the team, about it, he responded: “Merrill Lynch encouraged you to form a team, but we never mandated it.” Josh and Deb decided to meet with a number of other wirehouse, bank and independent b/d firms and liked the offers they got. They have committed to move by January 2009.

There is more to a successful financial advisor partnership than mere production. The whole is greater than the sum of the parts. But for financial services firms, it's the revenue generated that matters at this point.